Having good credit is essential for accessing funds and growing your business. If you're concerned about your credit scores, here are seven steps to help improve them.

Step 1: Understand Your Credit Score

First, check your credit score through a credit bureau. There are different models that may give you a score between 0-999 or 0-750. Make sure you understand the model used so you can assess your score accurately. In the 750 model, a score over 650 is excellent, while 490 and below is considered poor. In the 999 model, excellent falls between 767-999, while a score below 487 is poor.

Step 2: Resolve Disputes or Judgments

Sometimes people are unaware of disputes or judgments against them. It's important to check for any outstanding amounts and clear them from your credit profile to avoid these affecting future opportunities.

Step 3: Pay Your Bills on Time and in Full

Payment history accounts for around 35% of your credit score, so paying your bills on time is crucial. Consider using debit orders for fixed expenses and setting reminders for other payments to help maintain a good credit history.

Step 4: Separate Personal and Business Expenses

Keep personal expenses, like household bills, separate from business expenses. This is important for tax purposes and helps protect your personal assets in case your business faces financial difficulties. It also allows your business to build its own credit score.

Step 5: Keep Credit Usage Below 30%

Credit bureaus reward low credit usage. Try to keep your credit usage below 30% of your limit by paying down balances or increasing your credit limit. Avoid spending more than you can repay.

Step 6: Avoid Debt Consolidation and Debt Review If Possible

While debt consolidation or debt review might seem like solutions, they can lower your credit score. Debt consolidation involves taking out a new loan to pay off creditors, while debt review means restructuring your repayments. Both options can make you appear less credit-worthy to future lenders.

Step 7: Limit Hard Credit Score Inquiries

There are two types of credit inquiries: soft and hard. Soft inquiries (like checking your own score) don’t affect your credit, but hard inquiries (like applying for a loan) do. Too many hard inquiries can lower your score for up to two years, so be cautious about applying for multiple loans or credit cards.

The Bottom Line

Good credit scores are crucial for future business growth and loan applications. If your credit score isn’t where it needs to be, you can take steps to systematically improve it and get back on track for future opportunities.

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